Goldminers ride the metal’s high

Investors keen on Australia-based goldminers could be facing near-perfect conditions: the sector is particularly leveraged to the precious metal in local currency terms with the gold price in US-dollar terms hitting another record high and the Australian dollar falling in afternoon trade.

The panic gripping global markets sparked a rush to the safety of gold and the US dollar. The yellow metal soared to a record $US1772.38 yesterday, while the Australian dollar briefly slumped below parity before rebounding late in the session. The currency surged to a record above $US1.10 in late July.

The gold price in Australian dollar terms surged 5.9 per cent to $1742 an ounce – its best one-day gain since January 30, 2009.

This takes the gain in the Australian dollar gold price to just over 18 per cent from the start of the month compared with a 7.2 per cent increase in the US dollar-denominated gold price.

“The gold price is at all-time highs in pretty much every currency except the Swiss franc," said Stock Resource analyst Andrew McLeod.

“For emerging gold producers just about to come online, this is a cracking opportunity."

Gold stocks staged a strong rally and were among the better performers during a volatile day of trading on the market. By close, four of the best performing stocks on the S&P/ASX All Ordinaries were gold plays.

OceanaGold was the best of the bunch, up 9.95 per cent and the fourth-best in the All Ords.

Related Quotes

Company Profile

Ramelius Resources was up 9.74 per cent, Allied Gold was up 9.29 per cent and Gryphon Minerals was up 9.27 per cent, rounding out the best gold stocks.

However, gold equities are lagging significantly behind the commodity, with shares of gold-exposed stocks on the All Ordinaries index dropping 3.9 per cent and 11.6 per cent on average since the start of the month and year, respectively.

In contrast, the gold price in Australian dollars has jumped more than 18 per cent and 25 per cent over these periods, respectively.

This is because gold stocks are still regarded as equity and growing risk aversion is a negative for shares in general. However, the under-performance between resource stocks and commodities is more broadly felt across almost every industrial metal.

Nonetheless, gold and gold stocks could retain their shine given some market watchers expect the US Federal Reserve to announce plans to expand its quantitative easing program.

Such a move is likely to trigger a new bout of US dollar weakness, which in turn will support the gold price in US dollar terms.

On paper at least, a corresponding rise in the Australian dollar will put goldminers with more of their operations offshore in a better position as their cost base is not affected by the local currency.

However, Mr McLeod believes the Australian dollar is a marginal issue as the cost base of goldminers is more impacted by other factors.

“Cost is really a function of [ore] grade. The only way to get an advantage is by having a higher-grade deposit," he said.